Global economy still vulnerable says World Bank

WASHINGTON, D.C.: The World Bank says the global economy will strengthen this year, with growth picking up in both developing countries and high-income economies – some five years after the financial crisis.

However, in its report the bank warns that "prospects remain vulnerable to headwinds from rising global interest rates and potential volatility in capital flows, as the United States Federal Reserve Bank begins withdrawing its massive monetary stimulus."

Global GDP is projected to rise from 2.4 percent in 2013 to 3.2 percent this year, stabilizing at 3.4 percent and 3.5 percent in 2015 and 2016 respectively, with much of the initial acceleration reflecting stronger growth in high-income economies.

Growth in developing countries will pick up from 4.8 percent in 2013 to a slower than previously expected 5.3 percent this year, 5.5 percent in 2015 and 5.7 percent in 2016.

For high-income countries, the drag on growth from fiscal consolidation and policy uncertainty will ease, helping to boost economic growth from 1.3 percent in 2013 to an expected 2.2 percent this year, stabilizing at 2.4 percent for each of 2015 and 2016. Among this group, the bank notes the recovery is most advanced in the US, with GDP expanding for 10 consecutive quarters. The US economy is projected to grow by 2.8 percent this year from 1.8 percent in 2013, firming to 2.9 and 3.0 percent in 2015 and 2016 respectively. Growth in the Euro Area, after two years of contraction, is projected to be 1.1 percent this year, and 1.4 and 1.5 percent in 2015 and 2016, respectively.

Kaushik Basu (below), senior vice president and chief economist at the World Bank comments: "One does not have to be especially astute to see there are dangers that lurk beneath the surface. The Euro Area is out of recession but per capita incomes are still declining in several countries. We expect developing country growth to rise above 5.0 percent in 2014, with some countries doing considerably better, with Angola at 8.0 percent, China 7.7 percent, and India at 6.2 percent. But it is important to avoid policy stasis so that the green shoots don't turn into brown stubble."

The bank report projects global trade to grow from an estimated 3.1 percent in 2013 to 4.6 percent this year and 5.1 percent in both 2015 and 2016. However, weaker commodity prices will continue to put pressure on trade revenues. Between their early-2011 peaks and recent lows in November 2013, the real prices of energy and food have declined by 9.0 and 13 percent respectively, while those of metals and minerals have fallen by 30 percent.

Highlighting economic regions, the bank says growth in East Asia & the Pacific eased for a third year in 2013 to an estimated 7.2 percent, reflecting slower growth in Indonesia, Malaysia and Thailand,. GDP in China is projected to stay flat in 2014 at 7.7 percent, slowing to 7.5 percent for the next two years.

Growth in developing Europe & Central Asia strengthened in 2013 to an estimated 3.4 percent, bolstered by improved exports to high-income Europe and continued strength in energy-exporting Central Asian countries. This is expected to keep growth stable at 3.5 percent in 2014, gradually lifting to 3.7 and 3.8 percent in 2015 and 2016, respectively.

In Latin America & Caribbean, economies will pick up from 2.9 percent in 2014 to 3.2 percent in 2015, before accelerating to 3.7 percent by 2016. Strong export levels, along with continued consumption, is expected to nudge Brazil's growth to 3.7 percent in 2016. Depending on U.S. behaviour, Mexico's GDP is expected to grow by 3.4 percent in 2014, accelerating to 4.2 percent in 2016.

Middle East & North Africa growth, which contracted by 0.1 percent in 2013, will remain weak with the outlook "shrouded in uncertainty" says the bank. Aggregate growth for the region is projected at 2.8 percent in 2014, firming to 3.3 in 2015 and 3.6 percent in 2016 - well below the region's potential.

Growth in South Asia expanded 4.6 percent in 2013 and is expected to rise to 5.7 percent in 2014 and 6.7 percent by 2016, led mainly by recovering import demand by high-income economies and regional investment.

Finally, real GDP growth in Sub-Saharan Africa strengthened to an estimated 4.7 percent in 2013. The bank forecasts growth of about 5.3 percent in 2014, 5.4 percent in 2015, firming to 5.5 percent in 2016.